Interest Rates' Role In Pension Plans

This four page paper presents a detailed examination of interest rate assumptions for the purpose of reporting pensions. The writer explores the Pension Benefit Guaranty Corporation generally accepted counting principles. The writer then discusses what happens to various pension accounts when the interest rate assumptions change downward and upward. There were four sources used to complete this paper.

INTRODUCTION

As the nation watched in horror, Enron went down in flames, and in the process took millions of dollars of pension plans with it. People across the nation lost money as Enron's demise had a ripple effect on the economy and other companies throughout America. It caused ...

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defined benefit pension plans rely on a federal insurance program managed by the Pension Benefit Guaranty Corporation (PBGC) to protect their pension benefits, and the program's long-term financial viability is in doubt(Single, 2003). Over the last decade, the program swung from a $3.6 billion accumulated deficit (liabilities exceeded assets), to a $10.1 billion accumulated surplus, and back to a $3.6 billion accumulated deficit, in 2002 dollars. Furthermore, despite a record $9 billion in estimated losses to the program in 2002, additional severe losses may be on the horizon. PBGC estimates that financially weak companies sponsor plans with $35 billion in unfunded benefits, which ultimately might become losses to the program. This testimony provides GAO's observations on the factors that contributed to recent changes in the single-employer pension insurance program's financial condition, risks to the program's long-term financial viability, and changes to the program ...

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